Sorry for the poor subject.

I am considering a 20 year fixed mortgage so I can save interest costs over the term of the loan. Is there a downside to accomplishing the same thing by taking a 30 fixed and paying an additional amount per month/year? That way, I save interest costs but if I need cash I have the option to pay the regular monthly amount which is of course less than the 20 fixed. (Example numbers below.)

What are the downsides to this logic?

15 yr fixed 3.375 $1346 month
20 yr fixed 3.75 $1126 month
30 yr fixed 4.00 $907 month

The downside is that you will pay 0.25% higher interest rate for the additional liquidity of the 30 year loan.

You will also need the self-discipline to actually make the extra payments consistently.

Assuming I did make the extra payments consistently, there's no downside then, is that correct?

Did you read the first sentence? The other downside is that the interest rate is higher on a 30 year loan.

Aside from the higher interest rate DoingHomework mentioned, correct.

However, if you truly do "make the extra payments consistently," then there's no upside, either.

The only reason to do it is to have the option to make the lower payments if necessary. However, taking advantage of this option blows the whole plan up, because it'll no longer be paid off in the same time as if you'd taken the 20-year to begin with.

If you take the 20-year from the get-go, then you'll be forced to find a way to make those higher payments, even in bad times. It may be more painful, but you'd be guaranteed to be done in 20 years, rather than relying on your own discipline. I guess the question is, "how important is it to you that the mortgage be paid off in 20 years?" And are you willing to tie your hands (by taking the 20 instead of the 30) to make absolutely sure that happens?

<< Aside from the higher interest rate DoingHomework mentioned, correct. >>

I know I'm sounding like a bonehead but why is it a downside that the rate is higher if the *total interest* I pay over the term of the loan can be the same or less?

Two ways to look at it to understand why it is a downside.

1) If you go with your plan and take a 30 and pay it like a 20, your *total interest* will be higher than if you just took the 20 from the beginning. Assuming a $100k loan:
Plan *total interest*
30 in 30 $71,869.51
30 in 20 $45,435.28
20 in 20 $42,293.20

Alternatively, look at the monthly payments. The monthly payment on a 20 year loan for $100k would be $592.89. However if you take out the 30 year loan, to pay it off in 20 years you would need to pay $605.98 ever month.

2) There is something called the "time value of money." A dollar today is worth more than a dollar one year from now. There are various explanations/reasons for it. If you have a dollar today you can buy something and start using it. A lot can happen between today and one year from now (or 2, 10, 20, 30 years from now): inflation can cause that dollar to be worth less (buy less stuff); the person or company that owes you the dollar could die or go out of business; you may have to pay interest if you need to make the purchase now; etc.

So, focusing on the *total interest* is somewhat misleading. A 30 year loan may pay more interest, but the payments come later, so

You don't mention total principal amount, but there are a number of mortgage calculators out there where you can plug in the principal, the interest rate, and term, and you can see how much over the length of the term you will have paid in interest. If it is a high principal amount, the amount may stun you. Then you can see how much a 30 year loan "costs" in interest over a 20 year loan. Yes, you always have the option of paying off sooner, but most people do not because the official rule regarding money, something will always come up.

What the other posters are saying are correct. If you decide on a 30 year mortgage to pay off in 20 years, not only do you have the additional burden of voluntarily making those higher principal payments every month, the amount you will have to pay each month will be higher than if you took the 20 year term from the start. I would only do this if you are OK with paying off the mortage in 30 years, and paying off sooner is a nicety.

For myself, I since I could afford both the 30 and the 15 year, I knew I would rather pay off the mortgage sooner rather than have that little difference in liquidity.

I would always take the next longest term from the one I could comfortably live off of. So lets say I can manage without much stress on a 15 year, I would take a 20 year. This way if shit hits the fan, I have a little more flexibility. I would simply add-on a lot to my payments the first few years to pay it down quicker, so by the end of the 20 year, I only paid with interest the same as my 15 year or possibly less.